Optimizing Cash Flow for Your Practice: Negotiating Real ... 2020.pdf · • Negotiate commercial...
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Optimizing Cash Flow for Your Practice: Negotiating Real Estate in an Unstable Market
Transcript of Optimizing Cash Flow for Your Practice: Negotiating Real ... 2020.pdf · • Negotiate commercial...
Optimizing Cash Flow for Your Practice: Negotiating Real Estate in
an Unstable Market
Topics of Discussion
1.) Three Keys to improving profitability through real estate.
- Give yourself enough time
- Negotiate with multiple owners
- Hire professional representation
2.) How to save money on your lease renewal.
3.) State of the real estate market and how medical practices can capitalize.
Give Yourself Enough Time
Appropriate timeframe• New Lease or Purchase: 9-12
months
• Renewal: 12-18 months
• Land Purchase: 18-24 months
• Practice acquisition: 30-60 days
Negotiate with Multiple Owners
Whoever has the most viable options wins
• If the landlord believes you can’t move or aren’t willing to move… What happens?
Common Mistakes
• Not negotiating lease renewals
• Believing the landlord or seller will simply offer their best terms
• Determining market value by asking what your neighbors are paying
Hire Professional Representation
Establish Leverage
• Negotiate commercial real estate for a living• Can show you multiple properties• Shows the landlord you’re serious about getting the best terms
Common Mistakes/Misconceptions…
• Hiring an agent will cost money• Assuming you can save money without representation• My attorney can help with negotiations• Talking to the landlord or seller directly
Types of representation
• Commercial vs. Residential• Tenant vs. Landlord representation• Specialization: Healthcare, retail, office, etc.
Hire Professional Representation…
ORIGINAL OFFER OFFER AFTER CARR INTRODUCTION
Square Footage 2043 Sq. Ft 2043 Sq. Ft
Lease Term (Months) 126 months
Starting Lease Rate (Per RSF per Year) $30.00 $28.50
Monthly Payment $5,107.50 $4,852.13 ($255.37/month)
Free Rent $29,112.78
Improvement Allowance $25,000 and $4,500 towards signage
Additional Concessions $61,000 of rent applied to future purchase and rights for exclusive practice
FIRST YEAR SAVINGS $61,677.22
TOTAL SAVINGS $90,789.40
“ Shay was amazing to work with and saved me so much time! She got concessions I never thought of and saved me thousands!”- Anil Bajnath, MD
Hire Professional Representation…
ORIGINAL OFFER OFFER AFTER CARR INTRODUCTION
Square Footage 2,964 Sq. Ft 2,964 Sq. Ft
Lease Term (Months) 52 months
Starting Lease Rate (Per RSF per Year) $32.00 $21.00
Monthly Payment $7,904.00 $5,187.00 ($2,717.00/month)
Free Rent $20,748.00
Improvement Allowance $30,000
Additional Concessions Expense stop of 5% on cumulative expenses
FIRST YEAR SAVINGS $83,352.00
TOTAL SAVINGS $192,032.00
4/2/2020 - Landlord Broker: “I am certain they won’t accept $20 sq. ft as face. Probably won’t go below $30 or $31/sq. ft”
4/14/20 – Landlord Broker: “I think they have gotten an insane deal. I’ve been working on this listing for 3 years and it’s far below anything we have done.”
Lease Renewal• Landlord has made their money back on the
buildout allowance.
• Same concessions available as new lease deal.• Lower rents to improve cash flow• Obtain renovation allowances to update your
office.• Free rent, reserved parking, building signage,
etc.
• Must establish proper leverage• Start early… Get other offers even if you
know you’re not going to move
• “I’m alright, I have an option.”
• Landlords pay tenant broker commissions.
“CARR Healthcare Realty saved us over $850,000 on our lease renewal”Suzanne Marvin, CEO, OCPN
LocationExisting Lease Offer,
Raynham
Size - SF 6,696
Base Rent - Year 1 $25.00
Base Rent - Year 2 $25.75
Base Rent - Year 3 $26.52
Base Rent - Year 4 $27.32
Base Rent - Year 5 $28.14
Base Rent - Year 6 $28.98
Base Rent - Year 7 $29.85
Base Rent - Year 8 $30.75
Base Rent - Year 9 $31.67
Base Rent - Year 10 $32.62
Operating Expenses $11.50
Year 1 Monthly Rent $20,367.00
Avg. Monthly Rent $22,409.11
Total Gross Rent $2,689,093
Months of Free Rent 0
Months of Free Op. Exp. 0
Total Free Rent + Op. Exp. $0
Estimated Build Out per SF $0
Landlord TI per SF $0
Landlord TI Allowance $0
Tenant TI Contribution $0
Total Interest on Tenant TI $0
Total Cost of First 12 months* $244,404
Total Cost of Deal** $2,689,093
Building Signage No
LocationExisting Lease Offer,
Raynham
Competitive Offer,
Raynham
Size - SF 6,696 7,189
Base Rent - Year 1 $25.00 $22.50
Base Rent - Year 2 $25.75 $23.06
Base Rent - Year 3 $26.52 $23.64
Base Rent - Year 4 $27.32 $24.23
Base Rent - Year 5 $28.14 $24.84
Base Rent - Year 6 $28.98 $25.46
Base Rent - Year 7 $29.85 $26.09
Base Rent - Year 8 $30.75 $26.75
Base Rent - Year 9 $31.67 $27.41
Base Rent - Year 10 $32.62 $28.10
Operating Expenses $11.50 $0.00
Year 1 Monthly Rent $20,367.00 $13,479.38
Avg. Monthly Rent $22,409.11 $15,101.46
Total Gross Rent $2,689,093 $1,812,175
Months of Free Rent 0 6
Months of Free Op. Exp. 0 6
Total Free Rent + Op. Exp. $0 $80,876
Estimated Build Out per SF $0 $75
Landlord TI per SF $0 $75
Landlord TI Allowance $0 $539,175
Tenant TI Contribution $0 $0
Total Interest on Tenant TI $0 $0
Total Cost of First 12 months* $244,404 $80,876
Total Cost of Deal** $2,689,093 $1,812,175
Building Signage No Yes
LocationExisting Lease Offer,
Raynham
Competitive Offer,
Raynham
New Lease Offer,
Raynham
Size - SF 6,696 7,189 6,696
Base Rent - Year 1 $25.00 $22.50 $24.16
Base Rent - Year 2 $25.75 $23.06 $24.76
Base Rent - Year 3 $26.52 $23.64 $25.38
Base Rent - Year 4 $27.32 $24.23 $26.01
Base Rent - Year 5 $28.14 $24.84 $26.66
Base Rent - Year 6 $28.98 $25.46 $27.33
Base Rent - Year 7 $29.85 $26.09 $28.01
Base Rent - Year 8 $30.75 $26.75 $28.71
Base Rent - Year 9 $31.67 $27.41 $29.43
Base Rent - Year 10 $32.62 $28.10 $30.17
Operating Expenses $11.50 $0.00 $0.00
Year 1 Monthly Rent $20,367.00 $13,479.38 $13,479.38
Avg. Monthly Rent $22,409.11 $15,101.46 $15,101.46
Total Gross Rent $2,689,093 $1,812,175 $1,812,176
Months of Free Rent 0 6 0
Months of Free Op. Exp. 0 6 0
Total Free Rent + Op. Exp. $0 $80,876 $0
Estimated Build Out per SF $0 $75 $0
Landlord TI per SF $0 $75 $0
Landlord TI Allowance $0 $539,175 $0
Tenant TI Contribution $0 $0 $0
Total Interest on Tenant TI $0 $0 $0
Total Cost of First 12 months* $244,404 $80,876 $161,753
Total Cost of Deal** $2,689,093 $1,812,175 $1,812,176
Building Signage No Yes Yes
Savings $876,918
Lease Renewal Example
“Carr saved our practice over $350,000 in lease
costs over the next 7 years!!”
Carol F. O’Neill, FACMPE, Executive Director
Westwood-Mansfield Pediatrics
Monthly Yearly Monthly Yearly
Year 1 13,547$ 162,570$ Year 1 10,294$ 123,528$
Year 2 14,070$ 168,838$ Year 2 10,539$ 126,468$
Year 3 14,612$ 175,348$ Year 3 10,782$ 129,384$
Year 4 15,176$ 182,108$ Year 4 11,029$ 132,348$
Year 5 15,761$ 189,130$ Year 5 11,274$ 135,288$
Year 6 16,369$ 196,422$ Year 6 11,519$ 138,228$
Year 7 17,000$ 203,995$ Year 7 11,764$ 141,168$
1,278,411$ 926,412$
Savings 351,999$
Original Lease New Lease
Payment Amount: $3,253
Annual Rate of Return: 7%
Number of years: 20 Years
Present Value: $0
Future Value: $1,694,574
Future Value of Lease Savings??
Lease Administration Example
Location
Lease
Expiration Date
Square
Footage Total Expense
Total Sq Ft
Expense
Market
Average
Rent Rate
Delta
Annual
Overpayment
5 Year Annual
Overpayment
1 12/31/2017 1,476 $73,662 $49.91 $12.00 $37.91 55,950.37$ 279,751.85$
2 12/31/2017 2,000 $52,672 $26.34 $10.79 $15.55 31,091.79$ 155,458.95$
3 10/31/2018 1,682 $95,209 $56.60 $29.85 $26.75 45,001.43$ 225,007.15$
4 7/31/2019 4,150 $135,280 $32.60 $18.39 $14.21 58,961.38$ 294,806.90$
5 12/31/2020 3,215 $137,213 $42.68 $21.45 $21.23 68,251.60$ 341,258.00$
6 1/31/2022 4,500 $170,886 $37.97 $18.84 $19.13 86,105.84$ 430,529.20$
7 10/14/2022 6,986 $207,707 $29.73 $19.85 $9.88 69,035.20$ 345,176.00$
8 11/30/2023 3,884 $106,106 $27.32 $12.71 $14.61 56,739.99$ 283,699.95$
TOTALS 27,893 $978,735 $35.09 415,187.23$ 2,355,688.00$
State of the Real Estate Market
The real estate market was at an all time high as recently as February.
- Consumer skepticism has led to the CRE market cooling off significantly.
- Some tenants are closing their doors.
- Others can’t pay rent for a period.
- Many deals have stalled / died due to the uncertainty of the times.
This provides an opportunity for buyers and tenants to capitalize!!!
What can I do as a tenant?
Every situation is unique and needs specific analysis.
- Knowing the dates is imperative.
- In some situations, the landlord might give rent abatement. But it’s not always the best case.
- If it IS a necessity, ensure you know how it will affect you in the long run.
- In some dire situations, you may want to contact an attorney to discuss options.
Take aways..
- Hire professional representation.
- Give yourself enough time in negotiations.
- Negotiate with multiple owners on new office locations, but also lease renewals.
- Always re-negotiate lease renewals.
- Now is a great time to speak to an agent to try and capitalize on this uncertain market.
CarrHR.com
Stefan ZelichAgent, Massachusetts
Shay VoggAgent, Maryland
